If Goldilocks thought she had a tough time, she should try pricing an app. Priced too high and you won’t get enough users; priced too low and you won’t generate enough revenue. So, how do you find that “mama bear” price point?
What Goldilocks didn’t have, but you do, are some tried-and-true pricing strategies you can adopt right out of the gate.
Before we explore the various pricing models and how to choose one that’s right for your app, let’s get onto the same page…
A pricing strategy refers to the methodology for determining the price of a product. Besides the actual cost of producing the product and the value customers get from it, a pricing strategy also takes into account market demand, consumer perception, and the psychology of pricing to find that sweet spot.
To determine the most effective pricing strategy for your app, consider your brand’s pricing position, pricing segment, and pricing capability, as well as how your competitors may react. Account for various expenses, such as overhead, production, and marketing costs, then add a percentage so you can make a profit.
An effective pricing strategy optimizes both sales volume and profit for long-term success. It signals how much your app is worth to users and provides a tangible cue about the value it delivers. Bottom line: without a sustainable pricing strategy, you can’t stay in business for long.
Just like an app should be a part of your overall business and marketing strategy, its pricing should support your long-term goals. Here are the most common pricing strategies for apps and what you should know about them:
Who doesn’t like getting free stuff? But how does giving away an app benefit your business?
Free apps cost users nothing, so it’s easier to get more downloads. You can generate revenue by selling in-app advertisements. Many companies also offer free apps as an extension of their product or services. You can use free apps to build brand awareness, provide customer service, enhance the shopping experience, increase customer engagement, cultivate customer loyalty, and collect user data to help you achieve other business objectives.
What’s the catch? If you rely on in-app ad revenues, you need to gain users quickly and keep them engaged. You can increase the relevance of the ads using Google AdMob. The software helps you customize and monitor users’ responses to avoid annoying them with irrelevant promotions.
Users can download these apps for free, but they can only use the app for a limited time or access limited features. There are typically three freemium models: users pay to access premium features, move up in levels (e.g., in gaming apps,) and use in-app currency; users can access all the functionalities for free but only for a limited time, so they have to pay to continue using the app; users can pay a one-time fee to remove in-app ads.
What’s the catch? A freemium app can get more downloads and let potential customers try the features before they buy. However, some people expect a free app to have full functionality, so they may get disappointed or frustrated when they have to pay. Also, you need to invest in continuous upgrades and enhancements to attract paid users.
Just like what it says on the can — users pay a one-time fee to download the app and they can use it forever. This is the simplest pricing model, but it’s decreasing in popularity due to the rise of free and freemium apps. Some paid apps offer a 7 or 14-day free trial to entice more users to take them out for a spin before shelling out the money.
What’s the catch? This model has become the least effective pricing approach in recent years. It’s getting harder to convince people to pay by just showing a few screenshots on the app store. You’ll have to invest more effort in marketing your app and demonstrate why it’s better than free or freemium alternatives.
When paid meets freemium… you get paidmium! Users will pay to download the app, then access additional features at an extra cost. Now you may wonder, why would anyone pay multiple times? This model gives users the flexibility to access features they want without paying for those they don’t. You can charge a lower price for downloading the app and unlock ongoing revenue streams by rolling out new features consistently.
What’s the catch? If you’re asking users to pay for additional features, they’d better be good! Just like the freemium model, you need to continuously develop new features and improve the app to stay relevant, current, and engaging so users will make more purchases.
Users pay a monthly or annual fee to keep using the app. It’s most popular among news or content apps, dating apps, and music streaming apps. Although this model isn’t widely adopted yet, it’s gaining popularity as consumers are getting used to accessing premium and new content via subscription services (thank you, Netflix!) This model also gives you the opportunity to make more money compared with other options.
What’s the catch? With great revenue-generating potential also comes more responsibilities. You need to consistently engage users, upgrade the experience, and build loyalty. After all, your subscribers will only keep paying if they find value in using your app.
Every pricing strategy has its pros and cons. Ultimately, it’s about getting clear on what you want the app to do for you so you can price it to support your objectives. You should consider the purpose of the app and how it supports your business goals. Then you need to understand market demand, the competitive landscape, and users’ expectations. Also, take into account the cost of building and maintaining the app, so you don’t dig yourself into a hole.
To select the right pricing strategy and develop an app that checks all the boxes, you can’t throw some spaghetti on the wall and hope that something will stick. While app development is fast-paced, there’s a method to the madness. You need to dial in every component from product strategy to an audience and revenue model to launch an app that will keep on giving.
Get in touch for a free consultation and let’s kick some ideas around for your next big thing.